SEC Approves Plan to Bring More Detailed Stock-Market Data to Public

During SEC Chairman Jay Clayton’s term, exchanges have challenged a number of commission rules.

During SEC Chairman Jay Clayton’s term, exchanges have challenged a number of commission rules.

Photo: Lamkey Rod/Zuma Press

The Securities and Exchange Commission approved a plan to beef up the public data feeds that broadcast stock prices to investors, broadening access to market information that exchanges sell to professional traders at a premium.

Under the SEC’s plan, detailed data showing supply and demand for stocks will be added to the public feeds, which are called securities information processors, or SIPs. Wall Street banks and electronic trading firms use such data to predict short-term price moves and ensure that they get good prices when buying or selling stocks.

Another part of the SEC’s plan allows upstart versions of the SIPs to compete with the existing feeds, which are operated by the New York Stock Exchange and
Nasdaq Inc.

Together, the measures amount to one of the biggest overhauls of the SIPs since the rules governing them were passed in the 1970s. They are also a parting shot by departing SEC Chairman

Jay Clayton
at big stock-exchange operators that have challenged a number of commission rules during his term.

The SEC’s commissioners voted unanimously Wednesday to implement the plan despite opposition from the exchange operators, which could lose lucrative data revenue if the changes spur their customers to ditch their premium data feeds for the cheaper SIPs.

The NYSE and Nasdaq say the plan is unnecessarily complex and would harm the functioning of the stock market. In letters to the SEC earlier this year, both exchange operators said the regulator was exceeding its authority and violating federal law by pushing through a massive overhaul without sufficient analysis—a sign that they may sue to block the plan in court.

Nasdaq also argued the SEC’s plan Is unconstitutional because it would take the exchanges’ proprietary data without proper compensation.

NYSE, owned by
Intercontinental Exchange Inc.,
and Nasdaq have recently grown more willing to sue the SEC when it implements regulations that they oppose. In June, federal judges ruled in favor of the exchanges in two separate court fights with the SEC, one involving market-data fees and the other involving transaction fees.

The SEC’s plan grew out of longstanding concerns that the U.S. had developed a two-tiered structure for market data. The SIPs have less data and are slower than the premium feeds offered by NYSE, Nasdaq and
Cboe Global Markets Inc.
Critics say the exchange operators have an incentive to underinvest in the SIPs to drive more business to their premium feeds. The exchange operators counter that such criticism ignores huge improvements to the technology underpinning the SIPs in recent years.

“While some can afford a pricey trip along a freshly paved, proprietary high-speed toll lane, others are relegated to a cheaper ride on a public highway with cracked pavement and potholes,” Democratic SEC Commissioner

Allison Herren Lee
said. “Today’s rule provides an upgrade to ensure that the trading experience on the SIP data highways is closer to that of the trading experience on the proprietary autobahns.”

Under the plan, the SIPs would be required to show buying and selling interest not just at the current bid-offer price for a stock—which shows where it is trading at any given time—but in the next five price levels up and down. Such “depth-of-book” data is a key offering of the premium feeds and it can show for instance, whether buy orders for a stock are thinning out, a sign that its price may be about to fall.

The SEC’s plan would also expand the SIPs to include data on the 4 p.m. ET closing auctions that determine end-of-day prices for stocks, which have attracted growing volume in recent years. Such data can show shifts in supply and demand as traders place orders in the auctions, which often drives price moves in stocks near the end of the trading day.

During WSJ’s CEO Council, the Tesla CEO said government must protect startups’ competitive opportunities but should otherwise ‘just get out of the way.’ Photo: Maja Hitij/Getty Images[object Object]

Another part of the plan could give small investors more insight into the trading dynamics of stocks like Inc.
Tesla Inc.
whose share prices are in the hundreds or thousands of dollars.

Under the current system, the SIPs only display the best bid and offer prices for “round lot” orders, or those in multiples of 100 shares. That means investors may not see whether buyers or sellers are quoting prices for stocks in quantities smaller than 100 shares, called “odd lots,” which are especially common in stocks with high share prices.

The SEC’s plan would redefine what counts as a round lot: For instance, for stocks with share prices above $1,000 but no higher than $10,000, a round-lot order could be just 10 shares. That would force the SIPs to display more detailed quote data for stocks like Amazon, which is currently trading at about $3,150 a share.

One of the most disputed elements of the SEC’s plan would allow firms to set up “competing consolidators,” or alternatives to the SIPs that would aggregate and distribute the same data.

SEC officials have said competition would help ensure that public data feeds would be cheap and provide quality service. Critics, including the exchanges, say multiple public data feeds could sow confusion if differences arise between the prices they are broadcasting.

Write to Alexander Osipovich at